Tuesday, July 30, 2013

Make Believe Allegories and Mythical Metaphors Mislead Students

“The confusion occurs because folks
confuse the claims about the market order generating through the invisible hand
mechanism an order that would result had an omniscient and benevolent being
decided to order the economy, with the ability of a social planner to assume
the role of the omniscient, omnipotent and benevolent being.

The invisible hand proposition is of course the bold analytical claim of
mainline economics from Adam Smith onward --- the private property market
economy operating within a system of freedom of contract embodied in the rule
of law with its array of prices and lure of profit and penalty of loss, will
guide the decisions of the multitude of economic actors such that resources
will be allocated to their highest valued use, that least cost technologies
will be employed, and that all the potential gains from trade will be
exploited. The agitation of the market will be ceaseless if left alone
until the point where these conditions are met. In the end, God could do
no better. Or as Edwin Cannan put it: “The reason why it pays to do the
right thing – to do nearly what an omniscient and omnipotent benevolent Inca
would order to be done – are to be looked for in the laws of value.”

Two Comments on the Blog:

First: two
correspondents commenting on the above views of Peter Boettke write: Gene
Callahan (of whom I know absolutely nothing) writes: “The invisible hand proposition is of course the bold
analytical claim of mainline economics from Adam Smith onward..."How many
times does Gavin Kennedy have to show that Smith had no "invisible hand
mechanism" before people stop claiming he had one?”

To which
“Daniel Kuehn” responds:

“Gene - That
passage isn't the ace in the hole people treat it as. It's a funny little
passage if people take the time to read it. Kennedy's done a good job pointing
that out. But on the broader point he seems far too strenuous to me. If Smith
had only written his first three chapters we'd pretty much have what people
attribute to the invisible hand passage. So practically speaking Idon't think there's much harm in the misreading
of the invisible hand passage itself.”

My comments

I could
leave it there because “Gene” says it well, so I shall not comment on the
mythical IH metaphor as per usual.I shall confined my remarks to what Peter Boettke makes of the IH with hos colleague Daniel Klein.Much of Peter's methodological argument
seems to parallel what Daniel Klein wrote recently in his new book “Knowledge
and Coordination: a liberal interpretation” (2012), which I reviewed for “The
Adam Smith Review”, no. 8 (due out any time soon).

In it, Daniel Klein (2012) uses the IH Metaphor in the shape of an allegory, including
Edwin Cannan’s “omniscient
and omnipotent benevolent Inca”, reincarnated by Daniel in the form of “a
superior being named Joy who is invisible and who beholds a vast economic order
… Joy issues instructions, or requests, cooperatively, to each market
participant spelling out the ‘right thing’ to be done.Joy tells Brdget, the baker, that perhaps she should
advertise he confection.Within
the allegory, Joy communicates these instructions to Bridget. …Within the allegory, Bridget, who is
sensible to Joy’s benevolence and ethical wisdom and who feels entrusted to
advance what Joy finds beautiful, follows not maket signals, but Joy’s
communications embraced voluntary by Bridget, from what Smith calls her sense
of duty – she enters if I may say so, into the sentiments of that divine being
(TMS: 270) – and these communication tell her to take actions rather like the
actions that the market signals would lead he to take.” (Klein, 2012: 222).

Now I found
these allegorical arguments of Daniel Klein (and to some extent Edwin Canaan,
ed., WN, 1904) absolutely astonishing, even beyond comprehension.Daniel devises an allegorical approach,
rather then the IH, of which we had a scholarly debate as members of the
Academy in 2009, 2010 and 2011, in the end agreeing to disagree (though I should say
I learned a lot from those debates because David is a brilliant exponent of
Adam Smith’s moral philosophy and his political economy).

But this allegorical
approach leads off into a world of make-believe in which he has “Bridget”,
an entrepreneurial baker, listening to “disembodied voices in the night”,
deliberately instructed not to follow market signals, but, instead obey, trance
like, to "Joy", this “benevolent being’s” instructions that turn out to produce the very
same results that would have been obtained if Bridget had followed the market
signals that “Joy” instructed her not to follow but to listen to her instructions
instead!

My question
remains (directed to Peter Boettke, Daniel Klein and “Gene” too),
exactly what clarification does the “Joy” allegory bring to the study of and our
understanding of how markets work through very visible price signals that improves
on what Adam Smith described in Books I and II of Wealth Of Nations?

Or is this merely an effort
aimed at keeping the fantasy of the IH metaphor alive and well?

6 Comments:

GeneApologies! I was merely indicating that I had noted - and praised - your comments). My barbs were directed at Daniel Klein's and Boettke use of allegories about markets when perfectly understandable, not difficult, workings of market signals do an excellent job and do not need "Joy" to tell "Bridget" what to do."Gene" in quotes had no significance or implication that you did not exist - only trying to make clear I did not "know you" or your work. Your contact point show a picture of you, but to find out more I had to follow another link without an invitation. That's all!Gavin

I look forward to whenever the next edition of The Adam Smith Review comes out.

Although this might be slightly off-topic to the subject of this blog-post...I found a working paper on the SSRN that might be of interest to people with an interest in the intellectual history of political economy (and particularly on Adam Smith), and on decision-making.

DanielI agree. Daniel Klein often writes brilliantly, but sometimes he loses me. I thought it was just me. He is an excellent conversationalist when discussing Adam Smith, though I do not always agree with him.Gavin

Blue AuroraThanks for the pointerThe Adam Smith Review is in press I am told.I'll mention on Lost Legacy when it arrives.It is slightly wayward in regularity, possibly because its editors are very busy people.Gavin